Chandler Seminar Pinpoints Real Estate Positives

By Sarah Baker

Shelby County Trustee David Lenoir went out on a limb Thursday, Aug. 9, at real estate information company Chandler Reports’ “Master Your Market: Second Quarter Update,” claiming that the housing market had bottomed out.

“I have said for several quarters that I thought real estate had stabilized but was still pretty fragile,” Lenoir said. “This last quarter that just ended June 30, which wraps up our year-end, I think it’s stabilized. I don’t know that it’s still fragile, but I think it has stabilized.”

Chandler Reports’ second quarter statistics seem to support that theory. Residential sales in the county reached the highest quarterly volume of sales since the second quarter of 2010. Sales were also up 11 percent from Q2 2011, and average sales price was at its highest point since 2008.

However, 56 percent of home sales were valued at $100,000 or less, and bank sales made up 27 percent of all sales – a 6 percent increase from Q2 last year.

In the trustee’s office, Lenoir deals with tax collections of real estate property and personal business property. He said county revenue has dropped about $30 million due to decrease in property values.

“We’ve seen a record number of appeals,” Lenoir said. “The next appeal we have is in 2013, I think we’ll probably shave another 3 to 5 percent off the tax rolls, which equates to another $20 million.”

Lenoir said 60 percent of the county’s revenues, based on property tax, is spent on education. He pointed out when there is a population exodus, there is a correlation between building permits and abandoned property.

“A lot of folks have voted with their taillights and left Shelby County,” Lenoir said. “No one wants to pay property tax at any level if the quality of the education is not very good. When building permits exceed household growth, you have increased vacancy and abandonment.”

Shelby County saw the most home permits filed during Q2 since 2008 – up 52 percent from Q2 2011 – causing the second rise in unsold inventory levels since 2006, according to Chandler Reports. At the end of the quarter there were 921 homes in unsold inventory, up 4 percent from the same time last year.

“When you look at building permits being up 52 percent year over year, quite honestly, we haven’t had a 52 percent increase in population, so it’s a little bit of a concern as far as inventory,” Lenoir said. “Part of the stability in real estate is due to the decrease in inventory. Building activity has slowed down. In this supply and demand seesaw, anytime there’s decreasing supply, hopefully, with an increase in demand, prices tend to go up and stabilize.”

Referencing the National Association of Realtors’ Housing Affordability Index, he explained the housing affordability is at an all-time high, due to “cheap money” and opportunity in real estate portfolios.

“I want to encourage you that now is a great time to invest in real estate and to buy real estate,” Lenoir said. “Investors can buy at a 50 percent discount and sell at 90 percent of the market price on average. A tax sale is what we would call it in Shelby County might be a good place to look.”

The trustee’s office has four tax sales a year where it looks at properties all across Shelby County that are delinquent – anywhere from 150 to 300 properties every quarter that are put up for sale. In addition, the Land Bank’s portfolio contains more than 4,000 properties, the majority of which are vacant residential lots.

“One of the things Mayor Luttrell and I have talked about is are there some tax incentives, some residential development PILOTs if you will, in terms of creating an incentive where an investor may want to go in and build a home or reclaim some of this property to get it back on the tax rolls,” Lenoir said.

Meanwhile, Eric Fuhrman, president and managing broker of Crye-Leike Commercial, addressed the local commercial market and what his office has been experiencing with sales and leasing activity.

“This is a refreshing year for me, I hope it is for you,” Fuhrman said, adding broker and client sentiment was mostly upbeat from the “sob stories” of 2010 and 2011. “We’re observing an uptick in the economy and in our world of commercial real estate. Not a rebound, but an uptick in the air.”

Shelby County CRE sales during Q2 were the highest since 2008, and brought in the highest quarterly sales revenue since Q2 2007.

Vacant land (including farm land) had the most sales with 54 total, up 20 percent from Q2 2011. “Farmland is gold right now,” Fuhrman said. “It’s trading at its highest values and a lot of times, it’s all cash.”

Multifamily had the most sales revenue with 26 sales totaling $202 million, followed by industrial with $91 million. Both multifamily and retail had the highest sales price over the last 10 quarters.

“Our retail market is solid right now,” Fuhrman said. “We have occupancies in the 85 percent range, so that’s a great thing.”

Fuhrman said the office sector is a mixed bag. Class A space is retaining 90 percent occupancies, while Class C is down. People are not using office space like they used to, and “a large percentage consider Starbucks part of their office.”

Looking forward, Fuhrman said CRE sectors to watch include anything with the name, “senior” and medical, which he called, “volatile” and “all over the place.”

“We’re seeing these mergers of large groups buying up little groups, freeing up small medical space,” Fuhrman said. “There are some analysts that are saying that because of the influx of people in the medical system, they have more access to medical care, thus, more of a demand for more space. It almost contradicts the sentiment we may hear in the medical community is that, ‘we’re unsure, we’re going to batten down, we’re not going to do anything.’”